For startups, it is the best of times and it is the worst of times. It’s easier than ever to launch a company these days. But because there are so many new companies, it’s harder than ever for startups to survive. There just aren’t enough resources to support them all.
To stay in the game, startups need three things:
But with competition so intense, founders are finding it extremely difficult to attract those vital ingredients.
Naval Ravikant is the founder of AngelList, which connects new startups with funding and talent. Recently he asked the entrepreneurs who use his service what things they need and how hard it is for them to get those things. The results of his informal survey show a lot of startups are going hungry.
What Startup Resource Is Hardest To Find Right Now
“In the past, funding was the biggest need but today it’s recruiting,” says Ravikant, himself a serial entrepreneur who founded Epinions and Vast.com, and currently runs HitForge and Venture Hacks, in addition to AngelList.
After recruiting comes funding, then advisers. “That’s followed by social-media marketing and press, which really is another way of saying, ‘We need lots of customers.’ After that comes cofounders, which
is really interesting.”
Interesting because, although cofounders is halfway down the needs list, the fact that it’s there at all is yet another indicator of how difficult it now is for startups to bring talent onboard.
“In a frothy environment it becomes so hard to recruit people that you start having to expand your cofounding team,” Ravikant says. “It was similar back in the dotcom days. Epinions, which we started in 1998, had five cofounders instead of two, primarily because it was really hard to recruit early-stage employees without giving them cofounder equity.”
Top Startup Needs
- Social-media marketing
- Board members
- PR help
- Office space, lawyers, accountants
Product/Market Fit Is Key
Not all startups have a tough time pulling talent, however. Ravikant says there are a special few with a magic ingredient that automatically attracts top people: product-market fit. “If you’ve just raised $250,000, big deal – so have lots of other companies. If you’ve just come out of an accelerator program, big deal -so have lots of other companies. It’s companies that have product-market fit that are able to recruit employees. Everyone else is recruiting cofounders.”
Funding is the same. Cash flows to startups that have product-market fit- and trickles to those that don’t.
“Raising money has gotten more difficult in the last few months, especially compared to the last few years,” Ravikant says. “There were tons of companies launched in the last few years and the amount of series-A VC has not gone up. So it’s only companies with real breakout traction that can raise new rounds, while everyone else can’t.”
Millions Of Users
Seed funds and angels are tired of casting a wide net and hoping one minnow grows into a whale. They’d rather shoot fish in a barrel. So the serious funding now goes to companies that get to millions of users very fast, especially on the consumer side.
Takeaway: if you’re an unproven startup, set your sights on $250,000 in funding – max – and expect to treat everyone on the team as a cofounder. It’s no longer a realistic option to load the cubicles with employees and then go in search of product-market fit.
The New Math
The upside to this new math: Most startups these days don’t need a shedload of investment.
“It’s possible we’ll see a downturn in overall funding and an increase in the number of startups, just because the amount of money startups need continues to decline,” Ravikant says. “What I do think is changing, however, is that startups will be seen more as experiments than businesses capable of being backed by venture capital, at least until they’ve really proven something.”
A few years ago, you just had to be in the game to win funding and talent. Now, Ravikant suggests, the startup world is returning to a more traditional script: To the victor go the spoils.
Image courtesy of Shutterstock.